The single currency tumbled to 1.2720 on Thursday on concerns that the U.S. bank bailout plan and the economic stimulus package will fall short, while the ECB also cut its inflation and growth outlook on the eurozone, however, euro rebounded strongly in late U.S. session as a report showed that the Obama administration was hammering out a program to subsidize mortgage payments for troubled homeowners. The greenback rebounded against the Japanese yen from 89.81 to 91.13.

The European Central Bank cut its inflation outlook in 2010 to 1.6% from 2%, adding to speculation that policy makers will lower its main refinancing rate to a record low in March. ECB also reduced its 2010 growth outlook to 0.6% from 1.4%. Eurozone industrial production fell by a record 2.6% in December.

On the data front, U.S. retail sales rose by 1.0% instead of the expectation of a decrease of 0.8% and jobless claims came in at 623,000, slightly less than the upwardly-revised 631,000 in the previous week.

The British pound weakened from 1.4419 to 1.4138 on speculation of further interest rate cuts as Bank of England Governor Mervyn King said on Wednesday that the economy is in a ‘deep recession’. The single currency tumbled from 0.9073 to 0.8947 versus the sterling as the spread between two- and 10-year government debt reached the widest since at least 1992.

Friday will see the release of German and eurozone GDP and University of Michigan survey. Investors are focusing on the meeting in Rome at the end of this week as Group of Seven major industrial nations may discuss current exchange-rate developments.